Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics. I am part of the Austrian School of Economics, and I critique Krugman's writings from that perspective.

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Monday, August 22, 2011

Krugman's Freudian Slip?

For years, Paul Krugman has been touting the wonder of Sweden's economy, as its high taxes and high welfare programs apparently provide "aggregate demand" that keeps the entire circle turning. So, in a recent blog post he makes from Sweden, Krugman declares:

Of course the point is not that Sweden is perfect, it’s the fact that it works and thrives despite high taxes and a strong welfare state — which isn’t supposed to be possible according to conservative dogma.

So, does Sweden thrive BECAUSE OF high taxes and welfare, or IN SPITE of it? Both cannot be true. Is it a Freudian slip, or is he just creating a conservative straw man?

I have never been to Sweden, and right now I am the closest I ever have been to there, being in Riga, Latvia. Each day, two ferries run from Rita to Stockholm, and from what I can tell, Scandinavians seem to make up the largest contingent of tourists here in Old Riga, where we are staying. The reason that the Swedes like to come here is because Riga, while somewhat expensive by American standards, is much less expensive than Sweden. In my conversations with Swedes and Norwegians, I get the sense that they are not personally as wealthy as Progressive Americans want us to believe.

In other words, what Krugman (who is a multi-millionaire and really doesn't have to worry about what things cost) does not tell people is that Swedes pay much more for goods than do Americans, yet Swedish incomes are not as high, and their real incomes are substantially lower than ours. Now, this is not a slam on Sweden, which is a lovely country, but nonetheless is not quite the paradise Krugman wants to claim that it is.

Now, Sweden is not a hellhole, either, although I don't know of any practitioners of "conservative dogma" who make the claim that such a society cannot function. Furthermore, income tax and welfare policies are not the only thing affecting investment. Something tells me that the Swedish government is not nearly as hostile to new capital investment as is the current Regime in Washington. (While it will bug the Krugmanites who read this page, this editorial that appeared in the Wall Street Journal is spot on when it comes to dealing with the economic policies of the Obama administration.)

Krugman has one more statement that does strike me as interesting:

An anecdote here: Robin and I were talking yesterday with an eminent American financial economist, and said something about tax levels here. He said, “Well, that’s why all the young people are leaving.” Except, you know, they aren’t. But never mind — that’s what’s supposed to be happening, and it must be happening.

Does that mentality apply to the stimulus? According to Krugman, a "stimulus" by definition always must have a positive economic effect, provided it is "large enough," so is the fact that the economy is in the tank -- despite trillions of dollars being spent to keep that from happening -- proof on its face that the government is following an "austerity" plan? Or, if "that’s what’s supposed to be happening, and it must be happening" only applies to other things, but not the "stimulus"?

48 comments:

Major_Freedom
said...

Does that mentality apply to the stimulus? According to Krugman, a "stimulus" by definition always must have a positive economic effect, provided it is "large enough," so is the fact that the economy is in the tank -- despite trillions of dollars being spent to keep that from happening -- proof on its face that the government is following an "austerity" plan? Or, if "that’s what’s supposed to be happening, and it must be happening" only applies to other things, but not the "stimulus"?

Ever hang around "progressives"? I worked in Ann Arbor for 20 years. Those people understand private property and the idea of savings in their own lives regardless of what they might advocate as public policy for the proles.

Under torture, I'm sure Krugman and his minions would admit that Sweden is nice because it is populated by Swedes despite and not because of their welfare state.

Isn't Sweden essentially a "whiteyville" devoid of diversity and has uber-strict immigration controls? Didn't Sweden have a forced sterilization program even after WW2 ended? Perhaps when a xenophobic society looks and acts like, socialism works a little smoother.

Hmmm incredibly, prices in Norway are about 40% higher than in the United States and so are median monthly post-tax incomes. Norwegians have about 3x as much discretionary income than Americans, with tax rates between 40%-50%.

They also spend about 1/2 of what Americans do on health care, have 5x less children in poverty (and 7x less deaths from malnutrition), live about a year longer than Americans and has a far lower infant mortality rate. There are also less children born out of wedlock, and 1/2 as many teen pregnancies and abortions.

So clearly not a hellhole or some socialist, decadent, and deprived liberal society. But aren't high tax rates and liberal morals supposed to destroy us?

Ever been to Portland, Berkeley, Seattle, Madison, and other white cities Progressives are in love with? Do Progressives love any cities or countries that aren't overwhelmingly white? You positively refuse to accept the fact that EVERY place progressives cite as "working" are nearly devoid of blacks or hispanics. Progressive apartheid land-use laws do the trick every time!

anon? Are you saying that black people bring misery to cities and therefore white cities are better? Or are you saying that because a city is predominantly white progressive values do not work? On the one hand your a racist and on the other an idiot, so you lose either way.

Sweden collects 50% of GDP in tax & has 5% growth, US collects 25% & has 1% growth. Is tax good for growth or who explains the paradox?

In response I suggested:

Sweden has roughly same population as North Carolina. Let's try 50% state tax for NC and 0% federal taxes and see how they do!

The point is that a society like Sweden is much more directly comparable to one of the states in the United States rather than the entire nation. I think that's why Milton Friedman always caveated his statements on freedom as such: "I do not know any exception to the proposition that if you compare like with like, the freer the system, the better off the ordinary poor people have been."

Obviously Anderson is aware of the "official" GDP statistics you idiot. His argument was clearly that in his conversations with Norwegians and Swedes, they are not as wealthy as the reported statistics insinuate.

GDP includes "G" government spending dollar for dollar, and that means if the government spends $10 billion on ANYTHING, it means GDP goes up by that amount.

Responding to Anderson's point by referring to official stats is like responding to someone who says Chinese growth is not as high as officially reported by saying "They are growing rapidly! Just look at how high the official statistics are!"

I remember that during the Soviet era, that country was piling up gaudy GDP statistics, yet people were very poor. For that matter, the GDP of the USA was high during WWII, yet that hardly was a time of prosperity, unless one calls food rationing a good thing.

The one thing in a society that makes a huge different in wealth is private, for-profit capital. More capital investments make for a wealthier society, and my sense is that Sweden and Norway are not as hostile to private capital as are other countries, including, frankly, the USA and especially the USA under the Obama administration.

All I am saying is that the incomes of Norwegians are also accompanied by very high prices, much higher prices than we experience in the states. That is a lot different than saying that Norway or Sweden are hellholes or are horrible places to live.

Norway is one of the world's leading petroleum producers. Oil and gas revenues are a huge fiscal bonus for the Norwegian government, making possible what appears to be an idyllic welfare state. It is also next to impossible to immigrate to Norway, for if this were not the case, most of Europe would move there to take advantage of all the "freebies". I suspect that the wealth effects of all that petroleum must spill over to neighboring Sweden, much as the economy of Manitoba is buoyed by its proximity to oil-rich Alberta.

Does that mentality apply to the stimulus? According to Krugman, a "stimulus" by definition always must have a positive economic effect, provided it is "large enough," so is the fact that the economy is in the tank -- despite trillions of dollars being spent to keep that from happening -- proof on its face that the government is following an "austerity" plan?

If you look at NET government spending (federal + state & local governments), including the social safety net, you'll note that in spite of the stimulus, cuts by state and local governments (teachers, police and fire departments, etc.) still result in a reduction in government spending.

If there was an ACTUAL stimulus - that is, transfer payments to state and local governments enough to make up for their lost revenues - then there would actually have been a positive effect on the economy. As it is, all the stimulus did was raise the bottom of the pit a few feet.

It seems like Anderson is the one wit the Freudian slip. So what is it - is Norway a progressive hellhole full of people with little wealth and high prices? Or is it only mildly impacted by the higher prices it pays to fund its welfare state?

Now the internet is a wonderful thing - it allows hacks like Anderson to pick choose facts that correspond with their cognitive bias. For instance, yes GDP is not the best measure of "wealth" but it is still a good approximation despite his claims about the Soviet Union. And in response to "Major" Freedom - government spending on welfare does increase a person's individual wealth. You might not agree that it is the most efficient means, but a social security check is still money in someone's pocket.

And despite Anderson's equivocation here is a nice little fact also available on the internet - Norwegians take home after their high taxes 40% more income than Americans ($4,500 vs. $2,700 per month). That is a direct measure of individual wealth.

Norway is no progressive utopia either, but progressives never claim that their models or prescriptions will yield to utopia - it is that Austrians who claim that they have found the prescription and anything else will lead to despair (eventually...). Norway is oil dependent, and labor costs are high. But these are not insurmountable problems.

Someone also had a comment about strict immigration policy. Again, the internet is a wonderful thing. Crazy how one can forget the tragedy in Oslo just a few weeks ago, over the growing endorsement of multiculturalism and immigration from Muslim countries. Norway has been one of the more open countries to immigration since WWII and currently 12.2% of Norwegians are immigrants. Crazy thing that internet.

Anderson, you are a hack jealous of Krugman's job, travel, and writing ability. I am amazed they gave you a PhD.

This statement is a huge evasion of reality. Since social security is not in any sense an investment fund but merely a transfer of funds from people who are working to those who are not, money in the pocket of a retired person is simply money out of pocket for someone who isn't. There is no net positive boost or stimulus to an economy from this wealth transfer. It's the economic equivalent of shuffling a deck of cards. No matter how often you do it, there's still only 52 cards to play with.

"Norway is oil dependent" is the understatement of the year. Without oil and gas revenue, the Norwegian welfare state would be no better off than its counterparts in oil-poor states such as Greece or Spain. Oil and gas revenues allow the Norwegian government to boost incomes and fringe benefits for Norwegians substantially as compared to countries which do not happen to sit upon such valuable commodities.

Dennis, delusion is a comforting mistress. You failed to address any of my points. Your misgivings about social security have nothing to do with whether they actually translate to individual's sense of wealth, which is what the point of Anderson's idiotic statement was and senior Freedom's stupidity regarding the G in GDP.

Norway's welfare state has been operating long before the oil boom of the 1970s (shipping, fishing, agricultural products) and the problem is not oil per se but the failure of the Norwegian economy to diversify, which makes it highly susceptible to market fluctuations. The principle still stands - tax the wealthy sectors of society (in this case oil) to fund a social welfare program.

Oh and if you want another measure of "wealth" - unemployment in Norway is about 3%.

And to Anderson about the business environment and attack on capital - Heritage ranks Norway at 30 for economic freedom. The United States is 9th. Norway's investment freedom is 50.2 compared to the United States' 75. Again, the internet is a wonderful thing if you can get of your ego throne

Alright all you progressive drones, here it is from a European's own experiences:

Incomes in Europe are on their face pretty respectable. But, that tells only half the story.Who cares if Norwegians (take not that it is a sparsely populated country) enjoy 10% higher GDP per capita (all others with exception of Switzerland and Luxembourg are at least 20% below the U.S.). Have you ever been there? Any idea how much it costs to eat out or enjoy the luxuries of life you take for granted here? At $10 per gallon gas and astronomic cost of living in just about everything else, trust me you do not want to be another Norway or Sweden.

Ha ha ha ha! Do you guys ever take a moment to listen to what you write?

First Mike Cheel - no one ever doubted that the cost of living is higher in Norway than it is in the United States. Norway is one of the most expensive places to live in the world! You have not discovered anything new. You HAVE, though failed to note another statistic from that very same website - post tax discretionary income, which is 40% higher than in the United States.

So Norwegians pay 40-50% in taxes, benefit from a large social welfare program (including health care for all) AND have more income to spend (on more expensive products) than Americans.

American Patriot - I know you are from Europe, but your story is so ridiculous I actually laughed out loud. So life is hell in Norway because the luxuries of life (eating at restaurants and large apartments) are expensive? Quite a selective view of human happiness based primarily on individual consumption rather than other indicators like health, life expectancy, crime, teenage pregnancy and abortion, pollution and environmental health etc etc...

Again, no one is claiming that Norway is paradise. But, clearly progressive policies have not led to social breakdown, poverty, and unhappiness. Moreover, our system clearly does not convey the same benefits as the Norwegian social welfare system. We have more economic freedom (despite Austrian hyperbole) and rank far lower on many social indicators.

the only thing you should be laughing at is your intellectual shallowness.

So you would prefer the state to confiscate your income in return for the 'goodies' you obviously aren't willing to provide yourself with. What that boils down to is taxing those willing to be productive to give to the rest. And don't give me the crap that they have higher take home pays. Their post tax figures is meaningless since most of their taxes are in the form of VAT, not federal taxes - thus the astronomical cost of goods and services. As Thatcher said, the problem with socialism is that sooner or later you run out of other people's money.

Of course, to see that you would need two working brain cells to rub together.

No Anderson, that is not what I said. For god's sake they gave you a PhD.

You made the claim that Norway's economic success (which attempted qualify with your argument about higher prices) was due to its more lenient attitude toward investment and capital. I then provided evidence that showed that is not the case - Norway is far less accessible to capital than the United States is. That is not an argument about whether capital investment is a good or bad thing, but about your faulty and anecdotal causal logic. You really consider yourself some sort of public intellectual?

AP -

"So you would prefer the state to confiscate your income"

Your inability to think and argue shines through here. I never argued about what I would prefer, only about the impacts of such policies, which are clearly not what Austrians predict. That is you side-stepping the issue. An your attempt to disregard the fact that Norwegians - after all taxes - are still wealthier than Americans is pathetic. There is nothing to confront the fact I produced besides a childlike "no its not!" response.

As far as the government "confiscating" my goods to provide for the moochers in society - that is a simplistic and hyperbolic view of both taxation and what it means to be a society. Is dependency inevitable in any form of welfare provision - of course it is. But does that mean the enterprise is unworthy both morally and economically (e.g. by facilitating the creation of a class of people who can actually enjoy the benefits of the economy they work in)? Of course not. Is taxation coercive? Of course it is, but only in a context where there is no such thing as consensus which is what democracy is supposed to provide. Coercion is inevitable - even in the anarchic utopia of the Austrians.

And besides, your dollar earned is not free. The taxes collected off of your hard work make it possible for you to make that dollar to begin with. Everything about you - from the education you received as a child, the air you breath, the safety you enjoy, the culture you share and so much more - is not produced ex nihilo. It is the product of collective provision through taxation.

Seems like Norway definitely benefits from having economic freedom, to at least some extent that is. Here is the heritage foundation’s take of Norway.

http://www.heritage.org/index/country/norway

They prosper in spite of having high personal income taxes and a generous welfare state, not because of it. In my opinion, the economy of Norway would be even stronger if they had a greater degree of economic freedom.

However, having strict property rights protections, good overall business freedom, trade freedom, and being blessed with natural resources not to mention a low level of corruption all benefit the economy of Norway.

"Sweden has a lot of immigration: http://en.wikipedia.org/wiki/Immigration_to_Sweden"

Undoubtedly made up of other whiteyvilles from Finlandia. Been there several times and know people who live there. It's white, white, ultra white. Always much clenaer to have socialism when you're an Aryan xenophobic country.

I stand corrected, AKM. However, oil revenues alone cannot prop up an economy as large as that of Norway. (The Middle East sheikdoms are small enough and oil revenues high enough to give the Ultimate Welfare States.)

For example, look at Venezuela. Chavez has nationalized much of the oil industry, but is spending the profits on political ventures, and in the end it will be disastrous for him. First, Venezuela has too many people for all of that oil money to put everyone on the dole. Second, when it comes time for recapitalization, the capital won't be there. Pemex provides the example, as the capital investments needed to keep Mexico's oil industry going simply aren't there because the profits have been spent elsewhere for political purposes.

While Norway is not as capital-friendly as the USA, at least the politicians there are not declaring outright war on the oil industry as we see with Obama. And I would think that there is further capital investment and re-investment in that country. Just because it is ranked below the USA does not mean capital investment is non-existent.

Proof of the poverty of Alaskaman's arguments is evident in that he feel he needs to be rude and insulting in order to get his point across. If he really had something of value to say his arguments would be sufficient and be able to stand on their own.

"Proof of the poverty of Alaskaman's arguments is evident in that he feel he needs to be rude and insulting in order to get his point across. If he really had something of value to say his arguments would be sufficient and be able to stand on their own."

Agreed. All I did was list some facts (I don't believe he cited any facts) and I was attacked. I thought the same thing you did.

Mike here is another insult for ya - moron! I cited from the same site (numbeo)that you were. I also cited extensive facts about social indicators (health, pollution, crime, teen pregnancy).

And burkll you are even dumber - the AVERAGE price of ALL consumer goods versus post-tax personal income does not have to balance out. I don't spent all my money on restaurants and cars. You are comparing apples to something that is not even fruit! Maybe learn about percentages a bit.

And Norway has a huge social safety net, so you have already paid for cleaner air, better healthcare, a pension, and yes - government sponsored vacations!

And Anderson - your unwillingness to deal with the cognitive bias that has developed here is truly alarming. How far will you go until you accept that liberalism, progressivism, or whatever else you want to call it has not turned Norway into a socialist hell hole. Are you now going to make the same racist remark that because there are no black people in Norway (which there are) it is wealthy?

Here is some more info on Norway's oil industry - it is majority state-owned and the profits are invested in one of the most successful sovereign funds called Oljefondet. So no, it is not spent on political patronage like in Saudi Arabia or Venezuela. There is again that little thing that Austrians hate to admit - regime type. Democracy matters.

"And burkll you are even dumber - the AVERAGE price of ALL consumer goods versus post-tax personal income does not have to balance out. I don't spent all my money on restaurants and cars. You are comparing apples to something that is not even fruit! Maybe learn about percentages a bit."

i never said they had to balance out, but one thing that should be painfully obvious is that it does negatively affect Norwegians who do spend a higher % of their income on consumer goods (i.e. POOR people). so poor norwegians NEED welfare to approach the QOL of our somewhat less dependate poor.

Alaskaman calling Anderson egotistical is hilarious, Alaskaman is the most egotistical poster on this board but as is typical of Keynesians its always the other side that is arrogant and lacking is some proof. Alaskaman is simple regurgitating what they find online without any thought or proof.

Worth mentioning is—as Johan Norberg, Swedish fellow as the Cato Institute points out—that Swedish bureaucracy works only because we have a several hundred years long history of bureaucracy. As he puts it: “Sweden’s big state works because it is Swedish, not because it is big.”

1 Number one, our median income (not average, which is a sham indicator, especially for the US, where they have tremendous wealth disparity, even more thna Iran, and a cooked GDP based on fiscal turnover and many negative things we do not count here such as prisons, etc) is 50% higher than the USA. The USA median income is 25,000, ours is 37,000.

2 Our coprporate tax rates are much lower than the USA, and we have a much more SMALL and MEDIUM-sized business friendly environment. The USA is oligarch friendly to the extreme.

3 Our total income tax rates (national, regional, local) on all Income under approx 60,000 US dollars per year is around 31%, and after deduction breaks down to about 25%. Income over 60K is taxed at almost 48%, with deductions, this breaks down to around 40%.

4 Because of these rates, and our VAT, and the FACT that HEALTHCARE and Schools, etc etc,is all paid for in those taxes, I paid around 6000 dollars MORE in to total taxes in NYC on 80,000 per year versus the same here.

5 Even though there is technically not a minimum wage here, the threshold is 100 SEK per hour, with is around 17 dollars per hour, due to agreements that pay according to a percentage of what a union job pays.

6 We have well over 20% non-white populace, (over 40% in Malmö and over 30% in Stockholm) most from war torn refugee status over the last 40 years or so. We ARE NOT lilly white in the least as many belive, this is pure racist bunk.

7 We have on average, around 45 days PAID holiday, between national holidays, and firm-provided paid ones. The USA has around 10 to 15, if you are lucky. Our productivity per hour actually worked is FAR HIGHER than the USA, and if you count wages per hour actually worked, Sweden is even more above the USA.

8 Our poverty rate is almost zero, so the monies spent by our government go to actually IMPROVING out lives here, not mitigating sociological dysfunction like they do in the USA.

9 Our wages are also higher because the firms do not have to pay HUGE chunks of their revenues to private, for profit health insurance and care providers. One reason you see an occasionaly horror story here in health care is because it is so rare it sticks out. I have always received world-class service when I need it.

10 Final point- most of our tax money is spent at local and 'state' level, where there is a much greater sense of social connectedness and accountabilty. We will actually run a SURPLUS this year in our national and state7local budgets. We dont have to toss hundreds and hundreds of billions at servicing a mosntrous debt, like the USA does. We also have extremely strict regulations on banks and markets, and have not come under the systemic control of them to anywhere near the exten the USA does.

Bottom line, we are actually much free market than the USA is, as the US has pure oligarchic socialism for the few monsters at the top, and brutal submission to their controlling and plundering for the middle and bottom.

About Me

I teach economics at Frostburg State University in Frostburg, Maryland. We are located on the Allegheny Plateau, and we have cool summers and tough winters.
I am the single father of five children, four of them adopted from overseas and I have two grandchildren. My family and I are members of Faith Presbyterian Church (PCA).